Comparing a recently listed home with local trends.
Berkshires Fair Market Value Defined and Revisited in 2013
OK, so Berkshire County home sellers are depressed and teeter between hope and worry. Meanwhile local Berkshire home buyers are confused and hesitant. Most Berkshire real estate agents and brokers fall somewhere in the middle and lean either way depending on the week. Understanding Berkshires Fair Market value isn't so hard.
Since I began my career in 1975, I have noticed that real estate in our Berkshire County market area rises and falls with the general tide of the overall US economy but with some moderation relative to more volatile markets.
I have tracked the average median selling price of single family homes in Berkshire County since reliable county wide records became available in 1987 and the average rate of appreciation over that time span is 6% per annum. That sounds pretty good in fact but like the stock market, there have been ups and downs and timing is everything as they say.
For example, if you had purchased in 2000 and sold in '07, the peak year in the most recent run-up in prices, you would have been able to anticipate roughly a 60% appreciation, all other things remaining the same. However, if you had waited just two more years to sell, you would have had to give up over 20% of that gain. Those who purchased recently have not fared so well. Prices today have dropped back at least to '04/'05 levels.
So, what is fair market value? Simply put, it's the price an informed buyer and seller who are not under pressure, agree on.
Why are inventories so high while interest rates are so low? Sure there are not as many buyers in the mood or condition to buy but equally important are the sellers and many agents who just don't price their property to the market.
Can you imagine going to your stock broker and insisting on selling your stock in XYZ Corp for 80 when the current price being paid is 65? The broker will tell you that you can insist all day long on what a great company it is or that you have to get 80 because you paid 70 and deserve to make a little profit too but in the end, no one is going to pay you 80 for a stock that is only selling for 65.
Berkshires Real estate, to the surprise of many people and agents too, is similar to stocks. There is a supply and there is demand and the two work in tandem. For example, if someone insists their property is worth $500,000 but can be built brand new on a comparable parcel of land for $400,000, it is not likely to sell for $500,000. Or, if there are other similar homes available being offered around $400,000, the chances of selling this one at $500,000 are pretty slim.
So, how does a seller know what their property should sell for in the first place, if they really want the facts? A licensed appraiser is one approach. Be sure to get one with an excellent reputation for accurate work. Like any other profession, there are good and not so good ones and it's no use to you to get an appraisal if the appraiser, or worse, the hopeful real estate agent is pricing your property to please you.
Another approach is to look at the average rise and fall of Berkshire county homes in your area based on the median selling prices obtained and apply that to your Berkshire property in particular. That is fairly accurate unless you have made substantial changes or investment in your property but even then, by applying the formula that takes in to account the relative change in median prices from one year to the next, you can arrive at a very reasonable estimate of current fair market value.
There definitely are Berkshire home buyers today and would be even more, if more Berkshires sellers and Berkshire real estate agents were in tune with the Berkshire County real estate market. For example, I presented an offer for a buyer who wanted to purchase a Berkshire County property based on our analysis, of $710,000 on a Berkshire home that was listed at $949,000. The Berkshires property had been exposed to the market for almost nine months during the best part of the selling season with no offers. The highest figure we could arrive at using our unique in-house statistical formula was $700,000. The home happened to have been purchased in 1988 so we had accurate per annum adjustments to work with plus a generous allowance for an addition. The Berkshire seller just could not come to terms with such a blow to his expectations even though the Berkshire broker acknowledged that the seller had most likely very substantially overestimated the value of the property at the time of listing.
Fair Market Value is determinable through fairly rational analysis, not guesswork. If a Berkshires property seller is sincerely motivated to sell, then a careful and rational approach to the listing and selling of their property is the best bet. Anything else is a waste of time as proven by the very long periods Berkshire properties remain unsold on the market. There are almost as many overly optimistic prices suggested by eager real estate agents seeking a signed agreement for the listing as there are overly aggressive sellers thinking their property defies a rational approach to pricing.
Best advice: work with experienced Berkshires property and real estate Broker who thoughtfully analyzes the market and will provide you with carefully documented statistics that substantiate the pricing recommendations or better yet, hire a licensed Berkshire county real estate appraiser.
Give up the hope that a rich out of town buyer will pay a higher than actual market value price for the property. Out of town buyers have done their homework before they begin looking at homes. No matter how you earn your money everyone feels the same about getting the most for the dollars spent.
Fair Market Value is what Berkshire properties actually will sell for. Just ask an experienced agent about how many homes that have been sold have been reduced in price the past year. Also remember to ask how long that property was on the market before the seller opted for a fair market value price.
Paul Harsch
Figuring fair market value takes time. Ask every real estate agent for the statistics for the past 12 months before you list your Berkshire property.